NJ Ethics Advisory Committee Guidance on Mortgage Modification Work

The New Jersey Supreme Court's Advisory Committee on Professional Ethics and its Committee on the Unauthorized Practice of Law have issued a joint Opinion on Lawyers Performing Loan or Mortgage Modification Services for Homeowners. (ACPE No. 716, UPL No. 45)

The ACPE is responding to inquiries from attorneys regarding the propriety of performing loan or mortgage modification services for homeowners. For-profit loan modification companies, some with significant direct-to-consumer marketing budgets, are approaching New Jersey lawyers asking to partner with them to negotiate loan or mortgage modifications on behalf of distressed homeowners. Attorneys have also inquired about using financial or mortgage analysts in the course of providing loan or mortgage modification services for homeowners who have directly retained the attorney.

Opinion 716, which is binding on New Jersey attorneys unless revoked or modified by the Supreme Court, states these principles:

1) A New Jersey Attorney May Not Pay Fees to the Loan Modification Company for Clients Referred to the Attorney by the Company and an Attorney May Not Share Fees With the Company.

2) A New Jersey Attorney May Not Work As In-House Counsel to a For-Profit Loan Modification Company, Formally Affiliate or Partner With the Company, or Be Retained by the Company to Provide Legal Services to the Company’s Customers, and an Attorney May Not Assist the Company in the Unauthorized Practice of Law.

[An exception for non-profits is that legal services may be provided by a staff attorney to beneficiaries of a nonprofit legal assistance organization incorporated to provide legal assistance to the poor or functioning as a public interest law firm that provides legal assistance to a defined and limited class of clients.]

3) A New Jersey Attorney May Use an In-House Financial or Mortgage Analyst or Contract With an Analyst, Provided the Attorney is Responsible For and Supervises the Work, the Compensation to the Analyst Is Not Improper Fee-Sharing, and the Attorney Solicits the Work and is Retained Directly by the

Homeowner Client.

The Committees find that foreclosure prevention counseling by housing counselors certified by the United States Department of Housing and Urban Development and the New Jersey Housing Mortgage Finance Agency (HUD/NJHMFA), who provide mortgage loan modification negotiation services are not engaged in the unauthorized practice of law.

Of note in this regard is the New Jersey Supreme Court's foreclosure prevention mediation program. Resources are on the New jersey judiciairy's website here.